Africa is one of the most vulnerable continents to climate change. Climate and sustainability-linked bonds can provide funding to African governments and corporations for projects that help to mitigate climate change, combat biodiversity loss, and foster sustainable development. However, less than 0.3% of the global environmental, social, governance (ESG) bond issuance volume is devoted to projects in Africa. Based on the entire universe of 107 African ESG bonds from 42 governmental and corporate issuers over the period 2010-2023, this paper establishes that ESG bonds provide benefits to both issuers and investors in terms of lower spreads and volatility. Our econometric results highlight that greenwashing is a valid concern for investors in African ESG bonds and certification of ESG bonds makes a difference vis-a-vis the self-labeling of green bonds. Non-certified ESG bonds do not offer similar benefits compared to certified ones. Green macro-financial policy and suitable regulation to prevent greenwashing can foster African ESG-bond markets.

After the corona crisis, and even more so when the war in Ukraine struck, the price levels of all goods in the US and Europe rose surprisingly quickly and persistently. The FED began in March 2022 and the ECB in July 2022 with historically unique interest rate increases to combat the wage-price spiral that had not yet begun. In this article we show that energy, commodities and food were the main drivers of inflation. For this reason, central banks' goal of weakening demand for labor through historically large interest rate hikes seems unwise. We argue that the current measures cannot achieve all of their objectives: slowing inflation, stabilizing financial markets and sustaining growth. If interest rates remain high, but external forces emerge with a lasting effect and keep inflation rates high, especially in smaller emerging countries, it will be difficult to counteract this on a country or regional basis through high interest rate policy and national control of the price- and wage-Phillips curve. Significant negative side effects of interest rate hikes increase the risk of not making the necessary investments and, in particular, weaken the bargaining power of particularly vulnerable employment groups. Other tools are needed to curb inflation and keep it under control, for example more investment in sectors with supply disruptions and a massive expansion of investment in renewable energy.

This special issue of the Eurasian Economic Review delves into the critical relationships between macro-financial policy frameworks and environmental sustainability, emphasizing the urgent challenges posed by climate change, biodiversity loss, and environmental degradation. These environmental crises pose significant threats to global economic and financial stability, underscoring the necessity of integrating environmental considerations into macro-financial policies to foster sustainability and resilience in economic policymaking. Through a collection of research papers, this issue explores innovative strategies for developing comprehensive policy frameworks that harmonize monetary, financial, and fiscal policies with environmental objectives. It emphasizes the need for advanced methods to assess and manage the financial risks of climate change and environmental degradation. Underscoring the need for a multidisciplinary approach, the research advocates for the collaboration of economists, environmental scientists, policymakers, and stakeholders to develop effective macro-financial policies. These policies aim to mitigate environmental risks, enhance environmental sustainability, and preserve biodiversity. The issue calls for further research to refine models that accurately predict the macro-financial impacts of environmental risks and assess the effectiveness of policy measures, paving the way for a sustainable future in the face of escalating environmental challenges.

This study investigates whether public procurement mitigates or exacerbates innovative enterprises’ financial constraints. We distinguish between general and environmentally beneficial innovative enterprises. Theory suggests that the treatment effects of public procurement, particularly when mediated by the demand-pull effect, may lower a company’s funding constraints for innovation. We test this theory with extended probit models allowing for endogenous treatment and selection. The findings reveal a significantly positive treatment effect of public procurement on the probability of facing financial constraints in both areas: general and environmentally beneficial innovative activities. Thus, the principal implications of this study are (1) that being an innovating SME exacerbates financial constraints and (2) that strengthening SMEs’ participation in European public tenders would not contribute to lowering SMEs’ financial constraints. On the contrary, complementary grants or other financial incentives might be necessary to substantially increase the SMEs’ bidding rates in public tenders.

This study explores the effect of frequent green-bond issuance on a firm's financing costs. Using a sample of listed Swedish real estate companies issuing a total of 1074 bonds over the period from 2011 to 2021, difference-in-differences analyses and instrumental variable estimations are applied to identify the causal impact of frequent green-bond vis-à-vis frequent non-green-bond issuance on a firm's cost of capital and credit rating. The paper argues that repetitive issuance lowers a firm's cost of capital, while the effects of first or one-time green-bond issuance are the opposite. In line with the reputation capital hypothesis, issuing green bonds even lowers the firm's cost of equity capital, while issuing non-green bonds does not affect the cost of equity.

In this paper, we investigate how European households changed the diversity of their financial portfolios in response to the Great Financial and the subsequent European Debt Crisis. For this purpose we apply a Difference-in-Differences (DiD) approach estimated as a correlated random effects (CRE) model to six waves of the Survey of Health, Ageing and Retirement in Europe (SHARE). We find that households holding risky assets responded to the twin European financial crises with lower levels of diversity in their financial portfolios. We also reveal their flight to liquid and safe bank accounts at the expense of mutual funds and stocks. The downward trend peaked in 2015. Only after 2015, when the Eurozone debt crisis was definitely over, those households’ financial portfolios became more diverse again. The findings are highly robust across gender, income, and wealth quartiles, as well as across most countries. Such behavior is most likely a mistake with negative wealth consequences for the households and for the society. Programs to increase portfolio diversity literacy could support households in avoiding such behavior in the next crisis.

This paper explores the effect of a firm's reputation of being a green bond issuer on its financing costs. Using a sample of 73 listed Swedish real estate companies issuing in total about 1500 bonds over the period from 2011 till 2021, differencein- difference analyses and instrumental variable estimations are applied to identify the causal impact of frequent green vis-à-vis frequent non-green bond issuing on a firm's cost of capital and credit rating. The paper argues that it is repetitive issuance which lowers a firm's cost of capital, while the effects from first or one-time green bond issuance is the opposite. In line with the reputation capital hypothesis, issuing green bonds even lowers the firm's cost of equity capital, while issuing non-green bonds has no effect on the cost of equity capital.

This paper links banking system development to the colonial and legal history of African countries. Based on a sample of 40 African countries from 2000 to 2018, our empirical findings show a significant dependence of current financial institutions on the inherited legal origin and the colonization type. Findings also reveal that current financial legal institutions are not major determinants of banking system development, and that institutional development and governance quality are more important. A high share of government spending relative to GDP also positively affects banking system development in African countries.

This paper focuses on the identification of the causal relationship between central banks' supervisory guidance and individual bank stability. We propose and test the hypothesis that this causal relationship is mediated by the degree to which banks comply with their central bank's corporate governance recommendations. Specifically, we exploit the fact that there is considerable cross-country heterogeneity in providing supervisory guidance. Our recursive two-equation system is equivalent to an endogenous treatment effect model in which the treatment is the provision of supervisory guidance. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote provision of supervisory guidance. If a central bank has published supervisory guidance, local banks show better internal governance and higher stability.

This paper links banking systems development to the colonial and legal history of African countries. Specifically, we investigate the impact of differing legal traditions on the development of existing investor and creditor protection, and on African banking systems. Based on a sample of 40 African countries from 2000 to 2016, our empirical findings show a significant dependence of current financial institutions on the legal origin and the colonization type. Findings also reveal that current legal financial institutions are not the major determinants of banking system development, whereas institutional and regulatory quality significantly matter for banking system development in both common and civil law countries. Strong creditor rights reduce the cost of banking in African countries.